Ambiguous exemption notifications and delayed demands: duty-paid pig iron did not defeat relief, and the claim was time-barred.

Exemption under Notification No. 74/62 was held available where duty-paid pig iron was used along with scrap in manufacturing the final products, because the notification did not expressly require exclusive use of old iron and steel scrap and ambiguity in an exemption provision was resolved in favour of the assessee. The demand was also held time-barred, as the notice was issued after undue delay and the extended period was not justified on the facts. The impugned order was set aside and the duty demand failed on both exemption and limitation grounds.

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Issues: (i) Whether exemption under Notification No. 74/62, as amended, was available where duty-paid pig iron was used along with scrap in manufacture of the final products. (ii) Whether the demand was barred by limitation.

Issue (i): Whether exemption under Notification No. 74/62, as amended, was available where duty-paid pig iron was used along with scrap in manufacture of the final products.

Analysis: The notification did not expressly require that the final product must be manufactured only from old iron and steel scrap. A similarly worded exemption notification had been construed by the High Court to mean that any ambiguity in an exemption provision must be resolved in favour of the assessee. Applying that approach, the use of duty-paid pig iron as one of the raw materials did not by itself defeat the exemption.

Conclusion: The exemption was available and the finding was in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation.

Analysis: The notice was issued about one and a half years after disposal of the writ proceedings, and no timely action was taken by the department despite awareness of the matter. On these facts, the extended period was not justified.

Conclusion: The demand was barred by time and this issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the duty demand failed on both exemption and limitation grounds.

Ratio Decidendi: An exemption notification must be construed strictly but, where its language is ambiguous, the ambiguity is resolved in favour of the assessee; the extended period of limitation cannot be invoked when the demand is raised after undue delay without sufficient basis for suppression.

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